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Monthly Archives: Jan 2011

Egypt's crisis: The sticky topic of political risk with outsourcing is firmly back on the table

Like everyone else, I've been glued to the news the past few days trying to comprehend the enormity of the Egyptian crisis and the possible repercussions across the global sourcing industry.

Without dragging us into a political debate, what's alarming is the dependence global sourcing has on the Internet and political stability. When the first response of the government, in times of political crisis, is to shut down the Web, this has a massive impact on the nation's global sourcing infrastructure to support global businesses. While China clearly has the capability to regulate its Internet, you have to ask the question whether smaller, less affluent nations have that level of sophistication.

This is a major concern for businesses when they invest in critical support services in the region. While top-tier providers, such as IBM, Verizon and TCS rely on Egyptian resources, largely for call center work and software support and development, it's hazardous when the government shuts off the Internet and all hell is breaking loose. What really concerns HfS is the unpredictability of problems like this surfacing, that can seriously impact the security and availability of key support services in areas such as IT services, finance and accounting, payroll, customer services etc.

Egypt, as an example, has proven capable as a good quality resource location for the Middle East, Africa and European regions in areas such as IT, BPO and call center services, and has invested significantly in promoting its capabilities worldwide. For example, Egypt's Information Technology Industry Development Agency, ITIDA (website currently down) had planned to have a delegation at the forthcoming NASSCOM conference in India, and has invested heavily with McKinsey to support and help develop its capabilities. The country has invested millions to promote its sourcing capabilities - and now, that investment is looking under threat.

Procurement BPO engagements aren't about dating. They're about getting married, something we actually think many people don't realize. Remember this one point, and your chances of success with procurement BPO will increase on a log scale.

HfS and SpendMatters' Jason Busch team up to discuss procurement BPO marriages

Never mistake a BPO relationship for advisory or software. You can scrap a consultant's deck and trash a software package overnight, but BPO is different. Just as in a marriage, you can't fundamentally fix things if they're already broken going in.

In Part II of our Procurement BPO market appraisal with SpendMatters' Jason Busch (pictured here at a recent HfS strategy session), we get straight to the heart of the issues that buyers need to watch out for when evaluating a Procurement BPO endeavour. Essentially, you're going to be sharing your proverbial corporate bedroom with a service provider, so you may be wise to read our joint paper "Designing an Optimal Procurement BPO Program: Process Expertise and Realized Improvement" first:

It's remarkable how quickly an outsourcing concept can spiral from concept to reality, when the ability to achieve real cost-savings is augmented by accessing insights and flexible resources. And that's exactly what's been going on with Legal Process Outsourcing (LPO) since we first broached the concept here two years ago.

Since then, we have witnessed a remarkable confluence of forces establishing the field of Legal Process Outsourcing (LPO):

*A maturing supplier market that cemented confidence in the theory of LPO;

*A growing volume of LPO supply that puts downward pressure on prices but confirms the wisdom of the early movers;

At HfS, we came across a stray Scotsman wandering the streets of Manhattan, eager to espouse the virtues of LPO to anyone who wanted to hear them - and, guess what, we did. Ed Brooks joins the HfS contributing analyst stable, having had 11 years in the outsourcing and offshoring sector leading over $5 billion worth of deals for the likes of Accenture, EDS and more recently TPI, in areas as diverse as Finance and Accounting, HR, Clinical Research, Customer Services, and Legal Process Outsourcing. Today, Ed runs his own expert program to support LPO buyers, discretely named "The LPO Program".

Ed has contributed his first RAPIDInsight for HfS, entitled The Legal Process Outsourcing Landscape in 2011, that sets the scene for the industry. He begins with the edict:

You won't see a CEO being removed after achieving a double-digit growth rate too often, but that's just what happened, when Wipro's co-chiefs Suresh Vaswani and Girish Paranjpe stepped down last week.

Wipro eyes a new rhythm after Suresh Vaswani steps aside

And while I am personally excited to see TK Kurien take the helm, with whom I have had some excellent discussions over the years, I am concerned that some of the Indian service providers are so blinkered by today's short-term explosive growth spurt, they may taking their eye off the long-term plan.

Remember, Mark Hurd was at HP for 5 years before leaving due to non-corporate activities, Sam's been at IBM for donkey's years, Vineet's been leading HCL since 2005 and Frank D'Souza at Cognizant since early 2007. All these guys have led their companies though short-term pain to establish their long-term plans, and I would be highly surprised if any of them stepped away from their roles for a while yet, provided they avoid any late night HfS parties, or dodgy game show panels at conferences.

The "Amazing Horse Race" is the ultimate public bloodbath of the sourcing industry, as the "Buy Team" defends the title it so gloriously won last year in Edinburgh. However, this time it's not going to be quite as easy...

Join us for a Webinar on February 17

HfS Research, in partnership with the Outsourcing Unit of the London School of Economics, is hosting a webinar, sponsored by Accenture, featuring the key findings from the groundbreaking study of Cloud Business Services.

Tune in, crank up the volume, or pop in your headphones in if you're in the office. A few memories from the HfS team, as we ready for something just a little bit special, coming very soon to a laptop near you. And ask yourself - are you ready?

When our COO Esteban Herrerajoined us last year, we definitely got more than we bargained for… try a fluent Spanish and Portuguese speaker with a deep working knowledge and affinity of the assortment of cultures south of the border.

Yes, there's more to Esteban than merely a sourcing consultant sporting a painful grin after 14 consecutive hours of negotiations. So who better to examine Latin America, the Gigante Durmiendo of outsourcing. He's written a great RAPIDInsight on the promise (and realities) of Latin America as a sourcing destinations, so let's hand you over to Esteban to give you the 411...

Latin America: The Next Sourcing Frontier or an Afterthought?

I’ve been encouraged to see many providers paying more than lip service to Latin America as a region for growth and business opportunity.

Sourcing to LatAm: reaching new heights?

Previously the un-loved stepchild of the outsourcing geographies, Latin America does hold promise for those who approach it the right way—and there is more than one right way to approach it.

I have a personal soft spot for the region, since I got my start in offshoring managing service delivery from Brazil and Mexico before the word “offshoring” came to mean what it does today. I had a great time personally, but still to this day I have yet to find a more creative technical team than the one I led in Brazil, or a harder-working team than the one I was privileged to lead in Mexico. I could tell great stories about the quality of work I managed in Argentina, Colombia, and Costa Rica as well.

But you no longer have to take my word for it.

There are hundreds of multi-nationals and service providers delivering back office support from Latin America. A good friend who runs F&A BPO for a provider recently confessed that they had lost a number of deals because they could not adequately support their global clients’ Latin American needs.

I doubt the region can catch up to the Asian powerhouses in scale, but there are a number of value creating approaches to Latin American outsourcing/near-shoring that are proving successful. You can read about them, as well as the region’s advantages and challenges in our latest RAPIDInsight: Latin America: The Next Sourcing Frontier or an Afterthought?

Ever wonder where those banners and pop-up ads you see as you surf the internet come from? We did, too, until we met Scott Golas, VP at Centro and Transis MediaOps, which serves up millions of ad impressions every day.

Scott Golas, VP at Centro, Madman of Outsourcing

Scott has developed a unique reputation in the sourcing industry over the years, having been a practice and strategy leader in his earlier career with the likes of PwC, Aon Consulting and, more recently, Booz Allen Hamilton. Hence, it is no surprise to us that he is now helping take the world of online advertising into smartly sourced business models.

What's caught our attention with Centro, has been the firm's creation of Transis, a self-described "digital platform surrounded by services", which forms the centerpiece of a revolutionary new outsourcing service for ad agencies' online media functions. Transis essentially streamlines the process of planning, negotiating, trafficking and billing so agencies can devote more resources to strategic thinking for their clients.

Centro is now taking the function of advertising-process sourcing to an entirely new level with a new managed services offering, called MediaOps, that will enable advertisers to outsource their entire digital media operations, which are typically onerous to run, and complex to get right. This will allow the ad agencies to focus their talents on creative and targeted ad campaign management.

HfS Research's Phil Fersht and Mark Reed-Edwards had the chance to catch up with Scott recently. Rather than diving right in to a discussion of Centro, we were interested in learning how Scott got where he is...

The struggle with procurement BPO has typically been the belief that either moving labor from higher to lower cost regions, or re-badging employees from corporate to a BPO provider, would alone be enough to achieve results.

This is especially the case where BPO providers streamline transition costs over the duration of a multi-year contract, allowing the BPO customer immediate cost savings and limited (if any) upfront payments for resource investments. The results are often a "one-time" savings, the sourcing general who masterminded the deal is flavor of the quarter, and everyone goes back to their daily grind.

When the sourcing general eventually realizes she or he needs to make additional investments in process transformation and technology, they find it exasperating to go "back to the well". The CFO is hunting for that next bite of cost-efficiency and is shocked to learn they should have made some discreet investments in their BPO engagement from the onset. Costs are always like hedges… if not carefully managed, they grow back with a vengeance.

To tackle the issue we teamed up with HfS Expert Contributor, Jason Busch of SpendMatters fame. Jason also assumes the role of senior advisor for the coveted HfS Single-Malt Foundation, where he has excelled in his duties.

Lo and behold, our research suggests that this type of behavior, along with other indirect spend challenges, ultimately resulted in many initial BPO endeavors targeting indirect spend inside companies to come up short.

We were very saddened to learn that Joe Vales passed away this morning peacefully in his sleep. Joe was a pivotal and hugely popular figure in the outsourcing marketplace for many, many, years (long before we were around), and graced many events and occasions with his charm and wit. He was also a highly accomplished and respected marketing veteran, having been pivotal in helping position PwC's BPO business for a decade, until 2001. Instead of retiring, Joe set up his own advisory firm, which he was still running until his untimely passing this morning. An avid fan of HfS, he will be sorely missed by us, and am sure many of you will be equally saddened by his passing. He was a sweet and lovely guy, who loved his work.

He was most loved by his wife, Louise, five children and grandchild.

Joe's daughter, Kerryann, adds the following:

"He loved watching people he worked with years ago, when BPO was first getting attention, become the power houses that are shaping the industry today. He considered the nickname given to him "Father of BPO" an honor and working in this industry to this day a privilege.

"For Notre Dame, he was a Varsity letterman for the basketball team and has a plaque on the Hall of Champions out there for his excellence on the team. What college you went to would seem like something most people would let go of at a certain age, but 'once a Notre Damer, always a Notre Damer' - and he was always finding a reason to talk about the blue and gold.

"There are so many things that made my dad great. But his favorite word for people he valued was "special." If he called you "special" you were in his circle for good. I would say my father is without a doubt, special.

HfS analyst Euan Davis, fresh from his recent escapades with Cloud Business Services, is dedicating 2011 to exploring the synergies created by the acceleration of Cloud Computing and Service Integration. His journey begins with a look at an "intriguing" partnership just inked between Logica and Microsoft... over to you, Mr Davis

So what’s your New Year’s resolution beyond enjoying yourself less and working more? Mine is to shape the debate around Cloud and watch how some IT services firms morph into “Service Integrators.”

Looks like I am in good company too, as I hear Europe’s Logica begins its New Year by inking an intriguing partnership with Microsoft. What, at first glance, looks like a rather mundane partnership really signals something else: That its going to be the business driving Cloud—Logica gets this and so does Microsoft. And each needs the other.

Our latest report shows Cloud Services triggering potentially large-scale business transformations and opening up demand for new operating models as firms look to source, rather than build for Cloud. But who’s going to integrate the services? Will it be the internal IT shop making the complex

In her latest contribution to HfS Research, contributing analyst Deborah Kops of sourcingchange.com delves into the trials and tribulations of shared services leaders tasked with selling the value to their internal customers...

"In most organizations, believe it or not, shared services delivery models (read: centralization of operations through outsourcing or shared services…or both) is still optional. While the C-suite huffs about new business models and efficiencies, they often espouse the “Build it and they will come” approach, neglecting to use their considerable clout to really change the way the organization works.

"So the poor shared services team is left holding the bag, thinking they’ll get good air cover from the top brass, yet finding out very quickly that they are no different from a third party provider when it comes to sales and marketing. Yet few have the experience or the expertise to go out hat in hand, selling the model as a truly compelling proposition.

"Ultimately, shared services success is simply about growth. If, like a provider, the model can scale across the enterprise, it’s a raging success. But getting there is the trick. In her latest article for HfS Research, Deborah likens shared services growth to eating sushi—most people will eat the ingredients individually, but few like the wrapper..."

Find out more by downloading the article How do you get them to eat sushi over at our Research Page.

As if he didn't have enough on his plate already following his rapid rise toHfS fame and glory, we sent Esteban Herrera to mingle with the elite of iGate and Patni to take a closer inspection of the first billion-dollarsourcing marriageof 2011...

At one point, there were over 200 investor-backed ITES providers in India. Today there is one less, as iGate has entered in an agreement acquire a majority stake in Patni. The world does not need 200 ITES outsourcing companies in India, so on that level this is a good thing.

In fact, as mergers go this is a fairly synergistic one: a high-growth, innovative company acquires a bigger but staid, stuck competitor. The vertical strengths of the two companies have little overlap, and the two companies together will sell a respectable billion dollars, giving them some clout in this hyper-fragmented market.

That said, a billion dollars ceased to be a big deal in this market about six or seven years ago, so like much of the other M&A activity we are seeing, this feels like too little too late. iGate has been making the right noises for some time, with outcomes-based pricing and combined BPO/ITO offerings, but one has to wonder why it hasn’t made even more of an impact—if those two characteristics alone are real, they should be eating the lunch of their larger competitors who don’t know how to spell risk and could not break down their organizational silos with a battering ram. But they aren’t. To be sure, adding Patni’s 16,000 or so employees will add scale, but everyone knows that’s not what makes a merger work.

How can enterprises find unbiased coaching, advice and data to help them make the right sourcing decisions, but then also have the expertise they need to transition into a sourcing environment?

The role of consultants claiming to provide these services has been under constant scrutiny in recent years, as the outsourcing of IT and business processes become a mainstream component of organizational strategy.

Boutique outsourcing advisors have roamed industries for over two decades, providing structured roadmaps for taking enterprises into an outsourcing transaction. Enterprises usually bring them in, once the "O" decision is made, to perform the operational tasks necessary to develop a scoping document, find an appropriate provider, negotiate an agreeable price for themselves, and take it to a transaction. Most of these boutiques tend to be small and specialized, existing in a little world of their own where they hobnob with providers, frequent the same events, speak the same language and regurgitate the same slideware year after year, as not a lot really changes in the world of number-crunching outsourcing deals.

We've been wallowing in white papers, plied with PowerPoint and overwhelmed with oratory, but despite all the chest-pumping, the very latest market picture of F&A BPO sends us one very clear message:the market remains dominated by a small handful of established service providers, while the market entrants of recent years have struggled to make a major impact.

Our forthcoming market analysis of the global F&A BPO marketplace, which breaks down 788 current multi-process engagements, to be released shortly on HfS, delves deeper into these market dynamics.

Not a lot has changed in recent years, as over half the market expenditure for all live engagements sits in the hands of three providers, and several of the multi-billion dollar IT services market entrants are clearly struggling to take any significant share away from the "Big 4" incumbent providers; Accenture, IBM,Genpact and Capgemini. HP and Xerox (ACS) have lost some ground, especially in light of their recent mergers, while the smaller pure-plays WNS and EXL are impressively holding their own against the likes of multi-billion dollar offshore giants Wipro, Infosys, TCS and Cognizant.

The one common theme that kept cropping up, was their overwhelming admission for more effective change management and communications, business transformation and governance programs. To put this all in a nutshell, many customers must radically change their whole approach to sourcing to break free from inflexible old-world business models, IT strangleholds and rate-card purgatory.

So this year, we are putting a major research emphasis on what measures customers need to address to get moving with their sourcing agendas. And, as if by some higher form of sorcery, we've been graced with the presence of Deborah "Sourcing Change" Kops herself to help steer our sourcing change research agenda this year. Over to you, Mrs. Kops...

Happy Sourcing Change Year

My friends at HfS are forecasting a meteorologist’s dream for the sourcing industry— high pressure combinations of Cowboys and Indians, a blizzard of new deals, and very Cloud-y days. In the face of these anticipated patterns, how should buyers prepare for the stormy weather that ultimately impacts results for their organizations? Perhaps it’s time to prepare for the change sourcing represents a bit differently. Here are my top five recommendations for staying warm and dry in 2011.

Approach sourcing as “disorganizing event” Buyers usually restrict their ambition for sourcing to make existing conditions a bit better, faster and cheaper in a more scalable structure. Yet the act of sourcing is a profound opportunity to make indelible changes to the way the organization works—enabling work in new ways, setting new rules, delivering different outcomes, even changing the culture. Think about how you want to change the organization, and solve for it, rather than build a better mousetrap. What do you want sourcing to enable you to do?

Focus on “worst practices” Think about it--the best practices always take care of themselves, yet the worst practices fester and fester. Want to delight your customers by making their lives better? Stop painting a picture about a sourcing nirvana where 200 basis points of the cost of an invoice will solve all ills, and design a solution to get rid of their biggest headaches---inaccurate data, late close, lackadaisical staff on boarding, excessive system downtime. First fix what is inexcusable and downright awful, and customers will start to believe the vision.

Allay all fear The aim of sourcing is about as altruistic as corporate initiatives get. Few dare to argue that the business case benefits aren’t exceptionally compelling. Yet what stops it in its tracks is fear—fear of pushing too fast or treading on important corporate toes on the part of the sponsoring team, fear of not performing on the part of the delivery team, and fear of loss of control on the part of the business lines. If you can allay your own fears, and those of your internal customers, you’re halfway there.

Ditch procurement Is traditional procurement deeply involved in M&A activity? Corporate strategy? Business transformation? Not a chance. While our friends in the CPO’s office have an important role to play in procurement process and governance, they cannot be the major arbiter of taste when it comes to sourcing true corporate change.